Will AI Replace ERP Systems?
AI won't replace your ERP system, but it will make it smarter, faster, and more adaptable. The combination of ERP’s reliability with AI’s strategic capabilities will allow your organization to maximize operational efficiency and reduce costs.
The Current Role of AI: Transactional, Not Transformational
When we think about AI today, we often imagine it as a transactional tool: we ask a question, and the AI provides an answer. In many cases, it doesn’t matter which type of AI delivers the answer, or even if an AI delivers it at all. The value of the response largely depends on two factors: the quality of the model and the prompt used to initiate the interaction. A good model and a well-crafted prompt equal good results.
AI in Business Processes: Limited by Specialization
This same principle applies to using AI within business processes. For instance, AI can enhance decision-making by analyzing criteria and helping a user choose a supplier. However, AI models are often specialized and have limitations. Complex tasks may require information beyond the AI’s model or need capabilities the model can’t integrate.
AI Agents: A Step Beyond Manual Integration
Traditionally, if you wanted to pass the result of one AI tool to another or incorporate external data, you’d do it manually or by scripting a series of API calls. But that has changed with the rise of AI agents. These agents can take on complex tasks involving multiple steps and return a cohesive result.
A Practical Example of AI Agent Automation
To illustrate this, when I prepare keynote presentations, I often create a short video. My current process involves:
1. Creating an image with Midjourney.
2. Uploading it to RunwayML to apply their lip-syncing functionality.
3. Writing a script, which I could have a tool like ChatGPT generate.
4. Searching Epidemic Sound for appropriate music and effects while RunwayML works on the video.
5. Finally, using a video editor like Camtasia to bring everything together.
Now imagine an AI agent that could do all these tasks: query Midjourney, sync lips with RunwayML, find sound effects on Epidemic Sound, and edit everything together. My role would be reduced to the creative parts: defining the scene and dialogue, tasks that AI cannot yet outperform.
These AI agents are on the horizon and will soon be widely available.
The Question: Will AI Replace ERP Systems?
What Is an ERP System?
To answer that, let's first define what an ERP system is. To me, it’s a vast library of knowledge, processes, and experience. ERP systems know how to handle complex functions like accounting, logistics, and supply chain management. For example, if you purchase a ton of raw materials, the ERP system automatically handles both the accounting (less cash, more assets) and logistics (more raw materials in inventory).
ERP systems are built on decades of industry experience, and they continuously evolve based on customer usage. This experience is embedded in the system, prompting users to input critical data like material quality grades upon goods receipt, for example.
Could AI Replace ERP Systems?
Could AI replace this functionality? Technically, yes. In theory, a human could replace an ERP system too. However, humans don’t handle ledgers by hand anymore because it's expensive, time-consuming, and tedious. Machines do it faster, cheaper, and more consistently. While AI may not get bored like humans, it’s still costly to run AI systems. Sure, you could feed AI with accounting rules, logistics workflows, tax regulations, and database access. But every time the AI processes a transaction, it would have to figure out a strategy from scratch.
Why AI Won’t Replace ERP Systems: The Memory Challenge
You might ask: Why doesn’t the AI just "remember" the process and reuse it next time?
The answer is, it could. But this is exactly what ERP systems already do. They store and execute predefined processes at scale. So, will AI replace ERP systems? No. But AI can do something even more compelling.
AI and ERP: A Compelling Partnership
ERP is a High-Performance Engine
Think of an ERP system as an engine—a highly efficient machine that executes processes consistently and at low cost. It’s like the assembler code of business processes, reliably executing tasks the same way every time, with the added benefit of being auditable.
AI as the New User Interface
Now, imagine an AI trained to work with this ERP engine. It would act like a strategic layer on top of the ERP, guiding the system to handle more complex business events without requiring deep user expertise. This AI could become the new user interface for the ERP system.
Revitalizing ERP Knowledge with AI
The real value of an AI-powered ERP interface lies in its ability to leverage existing ERP functions without requiring users to know all the details. Often, after an ERP system is implemented, companies lose institutional knowledge of its full capabilities over time. An AI layer could help users rediscover existing features that are often overlooked or underutilized, eliminating the need for new software development and saving costs.
AI-Driven Customization: A Game-Changer
But AI could do even more. If a new business requirement emerges that the ERP can’t handle, the AI could develop a custom solution, executing it through its own code. If this new process is used frequently enough, it could be integrated into the ERP system, or kept in a separate AI layer for occasional use.
Conclusion: AI Will Amplify, Not Replace ERP Systems
So, will AI replace ERP systems? No, but it will significantly enhance their capabilities. AI will unlock the full potential of ERP systems by exploiting their existing functionality, knowledge, and processes. Instead of replacing ERPs, AI will amplify them, making business operations more agile and efficient.